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Two modules on funding defined benefits have been added to the Trustee toolkit, the Pensions Regulator's free online learning programme. Cathy Gallagher, technical specialist at the regulator, provides the details.

The requirements for trustee knowledge and understanding introduced by the 2004 Pensions Act are by now well known. Under these statutory requirements, trustees must be conversant with their own scheme's documents and must have a level of knowledge and understanding, appropriate to their role as trustee, of:

• the law relating to trusts and pensions;
• the funding of occupational pension schemes; and
• the investment of the assets of such schemes.

Research commissioned by the regulator confirmed that levels of trustee training varied greatly from scheme to scheme and that, particularly among smaller schemes, constraints on time and money meant that training opportunities were limited - even though there was no lack of enthusiasm among trustees for furthering their learning.

The regulator's response was to develop the 'trustee toolkit', a free online learning programme designed to help trustees to meet the statutory requirements. The trustee toolkit allows participants, working at their own pace, to focus on topics relevant to their scheme and their individual circumstances and to ensure that they achieve the levels of knowledge and understanding required by the legislation.

What's covered?

The e-learning programme is modular, and in each module trustees can work through a variety of scenarios in which they join a trustee board and participate interactively in realistic situations. Each scenario links to two or three tutorials where the learning objectives are covered in more detail; there are also relevant case examples (based on cases in the public domain) showing how the principles in question have operated in practice in the pensions world.

The subjects covered by the trustee toolkit are those identified in the regulator's 'scope guidance' which sets out the topics that constitute the relevant areas of knowledge and understanding. The regulator's code of practice, Trustee Knowledge and Understanding, also gives trustees practical help with fulfilling the requirements. The code lists the broad areas in which trustees require knowledge and understanding, while the scope guidance provides more detail on each area. There are two versions of the guidance: one for trustees of defined benefit schemes which include defined contribution arrangements, and a subset of this for trustees of defined contribution schemes only.

The e-learning programme is based directly on the scope guidance, so learners can be confident that by completing the programme they are well on their way to meeting the legal requirements.

Using the programme

Participants can use the modules in different ways depending upon their experience and the nature of their scheme. The toolkit helps in this respect by recommending the modules that users should look at, based on information they have provided about themselves and their scheme; for example, not all modules are relevant to trustees of defined contribution schemes.

Beginners can work through the scenarios and will be directed, at relevant points, both to the tutorials and to the case examples. Moreover, learners will also be asked, where necessary, to check their own scheme documents thereby addressing the conversance aspect of the requirements. 'Question Time' sections enable learners to check that they have understood the contents of each module. However, users are free to dip in and out of modules and follow their own path. For example, in some modules experienced trustees may wish to go straight to the 'Question Time' assessment to check their current state of knowledge.

The learning involved is not onerous: for example, a novice trustee spending an hour a week on the programme would probably be able to complete it in less than five months. While the regulator will collect aggregate data about usage of the programme, at no point will any individual's progress be tracked. Users can work through the modules and the questions as many times as they like and at whatever speed suits them.

For the majority of trustees the e-learning programme will be sufficient to equip them to meet the legal requirements, although there will be some, such as trustees of large or complex schemes, who will need further knowledge.

Making decisions

In the scenarios learners find themselves in a multimedia environment, taking part in the pensions equivalent of a soap opera in which they join a trustee board and start participating in the decisions that have to be made. The user takes the role of a new trustee, while other characters include an independent trustee, employer-nominated trustees (one of whom is the finance director), member-nominated trustees (including a trade union representative and a pensioner) and a scheme administrator.

As in any good soap opera, life for this group of trustees is eventful and turbulent as one drama follows another; however, the issues they have to make are those that will from time to time face trustees in the real world. For example:

• Who receives what share of the benefits when a scheme member dies tragically while on holiday?
• What should be done about a member who is threatening to take her problem to the Pensions Ombudsman?
• At what point should the trustees tell the Pensions Regulator about administrative errors they have uncovered?
• How should the trustees respond to the employer who says the scheme is no longer affordable?
• What should they do if the employer puts part of the company up for sale?
• Should they set up an investment committee?
• How can they respond to the financial difficulties the company is experiencing?

In working through these issues with the other trustees, supported where appropriate by the scheme's lawyer and other advisers, participants will start to acquire a clearer understanding of the role of trustee.

The modules that are already available include an introduction to pension schemes, the law relating to trusts, the law relating to pensions, and an introduction to the four major asset classes. This last module provides the learner with a firm grounding for the latest material (issued at the end of July) on funding defined benefits, as well as for future modules on the design and management of a defined contribution scheme and on fund management for both types of scheme.

The latest modules

The most recent modules include the principles relating to the funding of defined benefit schemes, and the way in which funding is dependent on the level of the scheme's liabilities and the financial circumstances of the sponsoring employer. They tackle the following areas:

• how funding for defined benefit arrangements works;
• the nature of the employer/trustee relationship and the effect of pension liabilities on sponsoring employers;
• the nature and strength of the 'employer covenant' (the employer's ability and willingness to meet the costs of members' benefits);
• valuing liabilities and arriving at a scheme-specific funding target;
• assessing potential risks to the scheme;
• the impact of trustee powers;
• transfers and bulk transfers in and out of schemes; and
• additional pension funding by employees.

Self-assessment

Users of the toolkit can, if they wish, keep a printed record of their progress through the programme. Additionally, once they have successfully worked though the full programme, completing all the self-assessment questions along the way, they will be able to print out a certificate of successful completion. Trustees who would like to gain a formal qualification - which is entirely optional - can sit the PMI's Award in Trusteeship which replaces the previous Trustee Certificate.

Benefits of e-learning

Research has shown that a given body of learning can be completed using e-learning in about half the time it would take to work through the same material using traditional classroom training techniques. Furthermore, there is no requirement for the travelling or the preparatory work and reading which is often required for face-to-face training. An additional benefit is that the learning can be undertaken at a place and time of the learner's choosing. An e-learning programme therefore greatly reduces the cost of downtime which can concern some employers. Where training is already available, trustees are still likely to find the regulator's programme useful for induction purposes or for helping to identify gaps in their knowledge.

Open to all

The e-learning programme is completely free of charge. Although it has been specifically designed with trustees in mind, it is potentially of use to all those involved in pension provision, including administrators, employers and members, and is available to anyone who is interested. Users can access the training materials whenever they find it convenient to do so. They can complete bite-sized chunks as they wish, returning to where they left off or going back to revise particular issues.

To enjoy the benefits of this e-learning programme, simply register online at http://www.trusteetoolkit.com/.

Published: Pensions Age, September 2006